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CA Intermediate · Advanced Accounting · AS 18 Related Party Disclosures

Gamma Ltd. has a subsidiary, Delta Ltd. During the year, Gamma Ltd. sold goods costing Rs 6,00,000 to Delta Ltd. for Rs 8,00,000 and lent Rs 20,00,000 to Delta Ltd. at year-end, with Rs 3,00,000 of the sale proceeds still receivable. Gamma's only other related party transaction was a guarantee for Rs 15,00,000 given for Delta's bank loan. In Gamma Ltd.'s own financial statements, which disclosure is correct under AS 18?

Gamma Ltd. should disclose sales of Rs 8,00,000, the loan of Rs 20,00,000, the receivable of Rs 3,00,000 and the guarantee of Rs 15,00,000. AS 18 requires the transaction volume, outstanding balances and guarantees to be disclosed separately, not the profit element or a netted figure.

  1. ADisclose sales Rs 2,00,000 being the profit element only
  2. BDisclose sales Rs 8,00,000, loan Rs 20,00,000, receivable Rs 3,00,000 and guarantee Rs 15,00,000Correct
  3. CDisclose sales Rs 8,00,000 and loan Rs 20,00,000 only, as guarantees are contingent
  4. DDisclose only the net outstanding balance of Rs 23,00,000

Explanation

AS 18 requires disclosure of the volume of transactions (sales at Rs 8,00,000 transaction value), amounts outstanding (loan Rs 20,00,000 and receivable Rs 3,00,000), and guarantees given (Rs 15,00,000) as these are specified items. Profit element and netting are not the disclosure basis, so other options fail.

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